The Internal Value Challenge: New Strategies for Law Department Structure
Cue the sound bites: “Law firms don’t get it.” “Their fees for legal work are exorbitant.” “General counsel refuses to pay the billing rates for $160,000 first-year associates.” “The incentive to record billable hours trumps true partnership with clients.” “Law firms are bastions of inefficiency.” “Big law is too fat.” “Clients deserve better value for their legal fees.”
The legal press and conference discussions are rife with these sound bites, and the cacophony seems to get louder and louder. In this dissonance, general counsel say it is up to the law firms to change, and they need to change now. Client value is not what it should be.
The Association of Corporate Counsel (ACC), in support of the in-house bar, has turned up the heat on the value burner with its Value Challenge. So far, the primary value debate has been dominated by corporate law departments looking outside their walls for change. While placing law firms under the value microscope is understandable, it is beginning to feel as if the dialogue is one-sided. It is time to acknowledge that there is another elephant in the room. That unmentioned elephant is the need to look for value inside the corporate law department itself.
To date, a majority of in-house efforts to increase value have been externally focused on things like alternative fee arrangements, convergence programs, e-billing technology and attention to billing rate increases. Now it is time for the general counsel to take the next step by looking internally and rethinking the way the law department is organized, staffed, operates and provides services. It is time to do something different — evolve into a new value structure. Internal changes combined with law firm initiatives could result in exponential improvements in the legal value proposition.
It is certainly true that general counsel are under pressure to reduce or at least control legal costs. They are required to do more with less. The rapidly changing regulatory and compliance environments have added to their workloads. Also adding to the pressures of an in-house practice is the fact that clients are sending non-legal work to in-house lawyers because of their own staffing challenges, turnover or, in some cases, because in-house counsel hold the institutional memory of an organization.
With turmoil in the profession and challenges presented by the global financial environment, the need to rethink the law department structure is apparent. The current in-house organizational models present challenges and missed opportunities that include:
- Flatter organizations with limited upward mobility and career progression exacerbated by a lack of lawyer turnover in most law departments.
- Lawyers frustrated and demoralized with work assignments that could be delegated to less experienced people.
- Limited people resources and increasing workloads.
- Lack of investment in analytical tools to better determine and analyze legal costs — law departments have implemented e-billing for bill processing, but often don’t use the back end opportunity to analyze the true costs of services.
- A lack of investment in process and project management.
- Minimal attention, by in-house lawyers, to the actual management of outside counsel from a process, project and cost basis. (Many do after-the-fact project management through bill review — and this is 60 percent of the total legal expenditures for most companies.)
However, despite these growing in-house pressures, there is a real opportunity to create a new in-house value proposition by reconsidering law department structures. Law departments have been organized in three standard variations for the past few decades: a functional basis, a client-facing basis or a matrix basis (client and functional).
If organized on a functional basis, the law department is structured around a legal specialty. Organizational units might include employment law, mergers and acquisitions, litigation, corporate/commercial and intellectual property.
If organized on a client-facing basis, law department units support business units and lawyers are expected to provide legal support to the business function.
An in-house hybrid or matrix organization combines both the functional and business unit organization. While some lawyers are focused on the business, there will be shared services lawyers providing specialty services (employment law, litigation) across the enterprise.
Within these organizational structures, the traditional roles of in-house counsel have included:
- Practicing law.
- Managing outside counsel.
- Practicing preventive law.
- Participating in corporate management and administration.
In-house lawyers spend a majority of their time in the first role, practicing law — the role they most enjoy. They spend limited time in the second role, managing outside counsel. But the fact that 60 percent of total legal expenditures for most companies are spent on outside counsel suggests that significantly more time should be spent managing these substantive legal and financial relationships. The time spent in practicing preventive law is “as time allows,” even though this is possibly the area that holds the greatest potential for cost savings and reduction of legal exposure. Corporate management and administration is a requirement of membership in a large organization, but generally it is minimized to the greatest extent possible.
The two key takeaways here are that managing outside counsel and practicing preventive law are extremely important and should receive much more attention and time.
A NEW MODEL
Now is the time to explore different models of law department organization.
In 2008, Richard Susskind published his provocative book titled The End of Lawyers? Rethinking the Nature of Legal Services (Oxford University Press). If you haven’t read this book already, you have probably heard of it. It is a must-read for anyone concerned about the future of the legal profession.
One of the predictions that Susskind makes in the book, and reiterates in an excellent article titled “Five Types of Corporate Lawyers Predicted for the Future” (The Corporate Counselor, Oct. 19, 2009), is that there will be five types of lawyers in the future. These five categories provide an excellent starting point for rethinking the way in-house law departments are organized, staffed and managed. The categories also provide an excellent example of how the roles of lawyers might evolve into a more effective and efficient in-house legal delivery model. The five categories follow, with both observations and comments.
The “Expert Trusted Adviser” is a provider of what Susskind calls “bespoke” legal services. This is the category that I have called the “go-to-lawyer” (“Are You a Go-To Lawyer?” Corporate Counsel, June 2006). These lawyers handle strategic legal services for a client. The significant benefit of having an Expert Trusted Adviser is in his or her deep knowledge, extensive experience and ability to quickly and accurately see the big picture. Not every lawyer is in this category today, nor can one expect that the profession will require a million Expert Trusted Advisers in the future. These lawyers are few and far between and are strategists.
The “Enhanced Practitioner” is the lawyer role that Susskind suggests requires genuine legal experience only. This lawyer is an expert in his or her field. This is a lawyer whose skills are enhanced by sophisticated technology and resource steroids. This role could be viewed as a shared service within the organization, equivalent to what today is often referred to as a high level specialist.
These first two roles do not represent significant changes from the current in-house staffing model. They are familiar roles, but not necessarily defined or recognized as described by Susskind. It is the next three categories that could lead to a new value delivery model.
The “Legal Knowledge Engineer” is a new role that moves our thinking outside of the box. The engineer’s role is to work out the processes and systems to make law practice more effective and efficient. Through process standardization, knowledge management and the use of technological tools and automation, he creates a newly efficient value model. This engineer role would be cross functional and require individuals who can capitalize on both a lawyer’s legal training and expertise and aptitudes in systems. These lawyers are project managers, creating artificial intelligence and decision trees applicable to the law. As Susskind suggests, this role is intellectually challenging in its focus on establishing ways to solve types of problems, rather than finding solutions one at a time.
Instead of handling preventive law as a sideline responsibility, consider creating the role of a “Legal Risk Manager.” It has been shown that preventive law can reduce legal costs and control risk. Unfortunately, this role is not a full time job for any one lawyer in today’s law department. It is peripheral, performed when time is available and the opportunity presents itself. Creating a full-time preventive law responsibility would be a tremendous opportunity for the law department. This role holds some of the greatest potential for legal cost control and takes the value proposition to a new level.
The fifth Susskind category is the “Legal Hybrid.” Besides earning a J.D., this lawyer is an expert in a number of disciplines related to legal service delivery, including project management, management consulting and deal brokering. Although lawyers now dabble in these areas, and other related disciplines, the future “hybrids” will have professional training in these value-added areas.
CHANGING TIMES
It is time to stop the one-sided dialogue. It is time to acknowledge the other elephant in the room. Certainly law firms must change, but law departments have an obligation to evolve as well. The old in-house structures and organizational paradigms deserve to be put under the microscope along with their law firm counterparts.
To take a different view of the future of the law department, it will take an open mind, a willingness to think differently, a willingness to experiment and take some risk and finally, creativity.
The future will look different for the legal profession. The debate over whether the changes taking place in the profession are revolutionary or evolutionary distracts from the major point — things are changing. Law departments are not immune to the changes. Exploring a new organizational structure based on the new and different lawyer roles and competencies, as described above, is a way to start. Perhaps these predictions, or something similar, are the new face of the in-house legal profession.
Editor’s Note
This article is reprinted with permission from the September 22, 2010 edition of The Legal Intelligencer. ©2010 ALM Properties Inc. Further duplication without permission is prohibited. All rights reserved.